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Department of Labor Will Examine Pay Threshold, Management Exemption for Overtime

It will likely be months before the Obama administration details the specific changes it plans for overtime rules, but officials are looking at making two significant shifts.

In a hearing this week, Labor Secretary Thomas E. Perez said the Department of Labor would study both raising the wage threshold and overturning the 2004 rule that made certain salaried employees exempt from overtime because they perform some managerial duties.

“There are two issues we are working on in the regulation,” Perez said. “Number one, what should the threshold be, and secondly, how does the test work.”

Perez also said the current structure of the managerial exemption keeps deserving workers frozen out of overtime. “You can work 1 percent of your time in a management function and 99 percent of your time stocking shelves and you will be an exempt employee under the current regulation,” he said.

Workers who now make more than $455 a week, which adds up to less than $24,000 a year, cannot receive overtime pay. That level was set in 2004, when President George W. Bush raised it from $155 a week. That increase gave overtime pay to roughly 400,000 workers, according to an analysis by the Economic Policy Institute.

But the increase was not pegged to inflation. A $455 threshold in 2004 would today be the equivalent of $561. White House officials have said raising it to that level would instantly grant overtime pay to 3.1 million workers. The EPI, earlier this year, suggested raising it to $970, which would extend overtime pay to salaried workers making less than roughly $50,000 a year. That would raise it to roughly the same level as in 1975 and boost the number of people eligible for overtime by about 10 million, the left-leaning group said.

At its peak in 1970, the income threshold would be worth $1,071 in today’s dollars, according to EPI.

Under current rules exempting managers, any worker who performs some managerial duties is exempt from overtime protections even if those duties are a relatively minor part of his or her job. That means, according to the White House, that fast food managers who spend most of their time working alongside rank-and-file workers may not receive overtime pay even though their colleagues who are not managers get the added pay.

“Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage,” President Barack Obama wrote in the March 13 memo directing the Labor Department to study changing the rules.

Obama directed the agency to look at “how the regulations could be revised to update existing protections consistent with the intent of the Act; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply.”

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